Foreign exchange rates under Markov Regime switching model

Stéphane Goutte and Benteng Zou
Authors registered in the RePEc Author Service: Andréas Heinen

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: Under Hamilton (1989)’s type Markov regime switching framework, modified Cox-Ingersoll-Ross model is employed to study foreign exchange rate, where all parameters value depend on the value of a continuous time Markov chain. Basing on real data of some foreign exchange rates, the Expectation-Maximization algorithm is presented and is employed to calibrate all parameters. We compare the obtained results regarding to results obtained with non regime switching models. We illustrate our model on various foreign exchange rate data and clarify some significant economic time periods in which financial or economic crisis appeared, thus, regime switching obtained.

Keywords: Foreign exchange rate; Regime switching model; calibration; financial crisis. (search for similar items in EconPapers)
JEL-codes: C01 C51 C58 F31 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:11-16

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